Where you work not how you work determines your pension prospects.

If you choose to work for a blue chip company or for the Government you can expect at worst a high contribution to a workplace pension and at best a “gold-plated” defined benefit pension which offers a guaranteed benefit.

While experts may argue that the guarantee on the benefits is worth more than that on the contribution level, the much greater inequality is between the employer with an historic commitment to pensions and the employer engaging with pensions for the first time (through auto-enrolment).

Compulsion on employers to pay from 1% today and 3% from 2019 into an employee’s pension pot is welcome , but it does not match the double digit contributions available if you work in a retail bank or the pharmaceutical sector. These employer contributions are key to good member outcomes.

Disproportionate intermediation

Yesterday I talked about disproportionate intermediation (an unwieldy phrase but one that I will return to). One of the legacies of the defined benefit schemes we’ve built over the past 60 years is a supply side of consultants and corporate budgets to pay their fees. When defined benefit schemes close for good, winding up , the advisory resource is released to do other things. The expectation is that re-employment will be found looking after the workplace pensions, with similar rewards.

But this assumes that corporate demand to pay fees remains undiminished. The risk transfer from the employer to the employee suggests that the risk management that advisers are used to delivering, should be shifted from employer to employee. In theory a workplace scheme with 1000 members is managing the same risk as a DB plan, 1000 times over.

Clearly private individuals cannot expect the same level of attention as an employer. In practice, the private individual gets little or no personal risk management, simply a blanket service from the workplace provider with some bespoke services delivered by advisers via the larger employer.

If you work for an employer with a legacy of DB provision, you can expect some kind of TLC (now known as “financial wellness” training). This is rarely delivered at an individual level, it is a corporate service that does what it can to replicate the TLC of a DB plan, by helping each worker DIY their retirement risk management.

For the vast majority of the 700,000 employers what have staged auto-enrolment so far, concepts such as financial wellness are just that – concepts. Most employers are currently getting used to delivering a compliant auto-enrolment service , a workplace pension and a minimal contribution.

The financial gap between what it’s thought people need as a “pension” and what they are going get can only be filled with money.

More money is coming from state pensions which are at last looking a meaningful safety net for the poorest and a firm base for those able to save.

More money will be building up in the pots of those who are just entering into workplace pensions.

Less money will be flowing the way of the top 20% of those in society who have been used to high quality defined benefit pension schemes. But this group are cushioned by high quality workplace pensions and by the consultancy services that are paid for by the legacy advisory budgets that large employers still have.

In an article I wrote yesterday, I argued that there is an over-supply of consultancy services to the largest employers , resulting in an unnecessary outsourcing of governance to former DB consultants – governance that could be carried out by experienced trustees.

I will go further than that and argue that the money that is being spent on bespoke consultancy to workplace pension schemes is of very little value relative to its value either as extra defined contributions or as help to the individuals who are trying to manage the risks of retirement with very little help indeed.

For employers new to the funding of workplace pensions, the choice is much starker, pay-in or get fined. The advisory budgets of “Flo the florist and friends” are non-existent, it is a struggle for many to justify a payment to http://www.pensionplaypen.com that amounts to about 20 minutes of an institutional adviser’s time. Since that payment might be 100% of all monies paid on pension governance for the foreseeable future, you can understand why “famine or feast” appears in the title of this article.

Over fed to the point of gluttony

If we take the 6000 employers who pay the PPF’s levy as the pension “haves”, then we can take the 690,000 + employers who have AE funded workplace pensions as the “have not’s” and the remaining one million employers who are outside AE as the “never hads”.

The Government’s AE review of 2017 must address the inequality that sees so many people – working ineligibly to be auto-enrolled, included in workplace pensions. But it must also look at the advisory market and ask why so much resource is being targeted at the 6,000 haves and so little at the rest of Britain’s employers.

The review may conclude that the advisory services offered to those at the “feast” end of the spectrum can never be replicated across all employers. Certainly the immediate priority is to increase pension contributions from the current levels; but I suspect that small employers are never going to want to devote advisory budgets to pension provision as exist among the 6,000 haves.

And I don’t think this is a bad thing. For I think that the consultancy services outlined in yesterday’s article Over-consulting ; not a victimless crime! are ridiculous. They are giving employers the wrong impression. It is not the employer and the workplace pension that needs this kind of attention but the people in the workplace pension taking all the risk. The easiest way of reducing the risk is to pay the fees for “over-consulting” as extra contributions into the workplace pension.

Only for the largest employer specific workplace pensions (plans like LBG’s my-tomorrow) is there an economic argument for the benchmarking services of consultants. The vast majority of smaller employer funded DC plans are “vanity projects”. Their trustees should listen to the words of Oliver Cromwell

“you have sat too long, for the good that you do, in God’s name – go!”

Where small workplace pensions “go” is obvious. They should go to large multi-employer workplace pensions, specifically the master-trusts that offer outsourced governance and the new protections that will arrive when the current Pension Schemes Bill becomes law in April.

With these schemes should “go” the vast majority of the pension consultants who serve them; they are the festering legacy of an over-indulged pensions industry grown fat on the rape and pillage of DB surpluses. Some of those consultants should stay, but most should go- go completely – they have sat too long.

We need neither famine or feast but meals proportionate to the hunger of those we serve. Currently consultants serve the rich and leave the rest to scramble around the dustbins outside. If you ask me where the future of consultancy is, I will point at the million employers who have no help , not the 6,000 who are over-fed to the point of gluttony.

I like the phrase “disproportionate intermediation” as it is as unwieldy and impenetrable as the DC pension consultancy I have described; Over-consulting ; not a victimless crime! I am a champion of a different kind of consultancy that is targeted on employers who have access to no advice at all on these vital workplace pensions.